FHA loans fell off the map for a few years after the rise in home sales and prices back, but in 2005, when the market took a slide down, they made a return and have been around helping prospective buyers purchase homes ever since. When the value of homes in the 1990’s were at an all time high, they exceeded the loan limits, making them less popular.

How does an FHA Loan work? Just remember that it does not guarantee approval for a loan, it is an insurance to your loan. This insurance serves as a cushion for lenders when they face the risk of a buyer putting down less than 20 percent on the purchase of a new home. The lender can only do certain things with the loan, without approval from the FHA. They can take loan applications, process the loan, and underwrite and close the loan.

The loan does hold limits on how much they can insure the loan for. But, as of January 1, 2009, the maximum mortgage limit in higher priced areas is 115% of local median prices, not to exceed $625,500. The maximum conforming loan limit is $417,000 for single-family residences nationwide. Depending on your area, your limits may be different, this is something your lender can help you with.
FHA loans are a good option for you if your credit is less than perfect, or you don’t have as much money saved as you would like. Don’t let those factors stop you from moving forward and starting your life in your new home. These loans give you options even when you have had financial hardship in the past. You can qualify for an this loan 2-3 years after you have filed for bankruptcy, as long as your credit history has been good since the bankruptcy was discharged, if you have gone through foreclosure, but have maintained excellent credit since the last date of your foreclosure. If this is the case, check all credit reports before applying for any type of loan, to insure that you will be qualified.

This rate, compared to a conventional, adjustable rate loan, hardly adjusts, which is good for people who don’t have as much money as someone applying for a conventional loan, mortgage insurance is included in the FHA loan, instead of being paid out of the borrowers pocket. Borrowers are allowed to finance 96.5% of the purchase price, and if you combine this with other loans, you may not have to pay anything out of pocket for the down payment. Which in turn will save you more money to pay the mortgage on your new home.

If you are in the market for a new home, but feel you don’t have the means to qualify for a conventional loan, speak with your lender and realtor today about how you can qualify for an FHA loan, and if it is the best option for you. Don’t let your past mistakes hold you back from having the home of your dreams, always remember you have alternative options.